We are approaching the end of yet another atypical economic year, characterized by the persistence of the health crisis, the relaunch of the economy, and the accumulation of challenges, including the intensification of inflationary pressures, the increase in commodity prices, and political tensions.

However, the Romanian economy has shown resilience to the incidence of the pandemic and the consequences of this health crisis (unprecedented worldwide in the last century), as well as to the set of adjacent challenges this year. This resilience of the domestic economy is mainly determined by the improving contribution of production factors to the annual dynamics of potential GDP, according to the econometric estimates developed.

For 2022 we expect the Romanian economy to grow at a slightly above potential rate, 5.2%, but decelerating compared to the dynamics in 2021 (6.2%). This scenario is supported by favorable prospects for productive investments, with a knock-on impact for the other components of GDP.

Thus, the engine of the economy could accelerate from 7.6% in 2021 to 10% in 2022, based on the low level of real financing costs and the implementation of programs launched by the European Union following the occurrence of the health crisis (Next Generation and the multiannual financial framework 2021-2027).

The accelerating growth of productive investments will contribute to improving the climate in the labor market sphere – the average annual unemployment rate will decrease from 5.2% in 2021 to 4.8% in 2022.

According to our central scenario, private consumption (the main component of GDP) could slow down from 6.9% in 2021 to 5.5% in 2022, an evolution influenced by the dissipation of the base effect (determined by the restrictions introduced to counteract the health crisis).

For public consumption, we forecast an acceleration from 0.3% in 2021 to 3% in 2022, a development strongly influenced by the implementation of the National Recovery and Resilience Program.

On the other hand, at the level of net external demand we expect a deceleration of the annual rates of exports and imports in 2022 to levels of 4.5% and 7.2%, respectively, as a result of the dissipation of the base effect generated by the introduction of restrictions.

For consumer prices (on the EU harmonized index) we forecast an acceleration of the average annual rate from 4.1% in 2021 to 5.1% in 2022, an evolution determined by recent shocks in the supply sphere, in a context characterized by the post-pandemic economic relaunch.

However, in the BT scenario we forecast the slowdown of the annual dynamics of consumer prices starting with the first part of 2022 and the convergence towards the target level of the National Bank of Romania by the end of 2023, an evolution determined by the dissipation of shocks from the supply sphere and the measures implemented by the central bank (the post-pandemic monetary cycle initiated in 2021).

In our central scenario, we expect the NBR to continue this cycle also in 2022, by raising the monetary policy interest rate and by widening the corridor formed by the interest rates on permanent facilities around the reference interest rate.

For the 10-year maturity government bond interest rate (a barometer for the cost of financing in the economy) we forecast an average annual increasing level to 5.2% in 2022 (from 3.7% in 2021), against the background of prospects regarding monetary policy (USA and Romania) and forecasts for the nominal GDP annual growth rate.

Not least, at the level of the foreign exchange market, we anticipate the continuation of the gradual upward trend for EUR/RON towards an average level of 5 in 2022 (up from 4.92 in 2021).

We emphasize that Romania will continue to face persistent twin deficits in 2022, but we expect an adjustment in their share of GDP, a scenario supported by prospects for acceleration in structural reforms.

At the end of this analysis, we draw attention to the risk factors for the evolution of the domestic economy in 2022, including the possibility of severe deterioration of the climate in international financial markets (after the strong increase in stock market indices over the past quarters), the persistence of the health crisis, the internal political climate and the regional geopolitical context.

Forecasts for the evolution of macro-financial indicators in Romania

Source: BT forecasts using Eurostat, INS, BNR, Bloomberg data

Editor: dr. Andrei Radulescu, Director Macroeconomic Analysis, Transilvania Bank